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Why is dividend yield important in the analysis of a company?

Before a company is able to pay a dividend, it must have enough earnings and working capital. The, it is up to the directors to consider the other aspects mentioned above and reach a decision on whether to pay a dividend, and to determine the size.

The yield on common and preferred stock is the indicated annual dividend rate expressed as a percentage of the stock’s current market price. It represents the investor’s percentage return on the investment at its prevailing market price. Dividend yields allow for a superficial comparison between different companies’ shares. What they don’t show are differences in the quality and record of each company’s management, the proportion of earnings re-invested in each company, the proportion of preferred and common in each company’s capitalization, the equity behind each share and, in the case of preferred shares, the difference in preferred dividend coverage. All these factors should be taken into account in addition to just comparing yield – preferably over several years. Only then can an informed evaluation be made and an investment decision reached. Indicated annual dividend per share/Current market price x 100 To estimate the dividend possibilities of a stock, the factors to consider include: